Power of Compounding: Starting at age 25, 30 or 40, How much money to invest in SIP to build Rs 1 crore retirement corpus? See examples with calculations

Harnessing the Power of Compounding for a Secure Retirement

Planning your retirement just got easier with Systematic Investment Plans (SIPs).

SIPs harness the power of compounding interest to build a substantial retirement corpus.

By promoting disciplined investing, adjusting to your budget, and benefiting from cost averaging, SIPs can help you achieve your goals.

Read on to learn how SIPs can help you build a Rs 1 crore retirement corpus over the years. 

Power of Compounding | What is a Systematic Investment Plan (SIP)?

A SIP is a simple and disciplined way to invest in mutual funds.

It involves investing a fixed amount regularly, helping you build wealth over time.

In other words, an SIP is a regular investment plan where you invest a fixed amount of money at regular intervals in mutual funds or other investment schemes.

 

Benefits of SIP

SIPs provide a range of benefits. Some of these benefits are listed below: 

Flexibility: Adjust investments according to your budget 

Power of Compounding: Grow your money significantly 

Cost Averaging: Buy more units when prices are low 

Disciplined Investing: Automatic deductions 

How does an SIP work?

An SIP operates seamlessly through a straightforward process. It begins with automatic bank deductions, where a fixed amount is debited from your account at regular intervals, such as monthly. This amount is then invested in your chosen mutual fund scheme. The investment is executed at the prevailing Net Asset Value (NAV), which is the price at which units of the mutual fund are traded (bought or sold). It is based on this NAV that units of the mutual fund are allocated to your account.

For example, if you invest Rs 100 at an NAV of Rs 20, you will receive 5 units of the fund. 

So, in short, an SIP offers the following three features: 

 

Automatic bank deductions 

Investment in chosen mutual funds 

Units awarded based on Net Asset Value (NAV) 

Calculating SIP for Rs 1 crore retirement corpus starting at age 40

So, assuming that you invest in an SIP that gives you an average return of 12 per cent per annum starting at age 40, you will need to invest Rs 10,100 for 20 years, amounting to a total investment of Rs 24,24,000. 

 

Power of Compounding

Your Rs 24.24 lakh investment (accumulated in the 20 years) will deliver a return of Rs 76.67 lakh, show calculations at the assumption of 12 per cent per annum. 

So, your overall corpus will stand at Rs 1,00,91,394.

Power of Compounding

That ways, even starting at age 40, you will end up with more than Rs 1 crore by the time you reach 60 years of age. 

Now, imagine what you can achieve by starting earlier than 40 years of age.  

 

Power of Compounding | Why starting early matters...

Many financial planners emphasise the importance of starting early, and investing for as long as possible, to harness the true power of compounding.   

What if you do the same starting at 30 years old?

Now, assuming everything at the same levels as the previous example, let's see how much money you will need to save each month to do the same in 30 years, i.e. starting at age 30. 

 

 

Starting 10 years earlier cuts down the effort needed significantly

Starting at age 30, you will need a monthly SIP of Rs 2,850 to reach your Rs 1 crore goal by age 60, show calculations. 

So, starting at 30, you will be investing Rs 10.26 lakh in the 30-year period and by the time you turn 60, you will have a corpus of Rs 1,00,60,254. 

Add 5 more years and see the magic...

Now, someone starting at age 25 will have 35 years of investment period, which will bring the monthly saving amount even lower to reach the goal of Rs 1 crore by age 60.

So, starting at age 25, you will need a monthly SIP of Rs 1,540 (total investment of 6,46,800 during the 35-year period) which should deliver a return of Rs 93.56 lakh over the 35 years, calculations show.